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China Finds a New Gateway in East Europe

Analysis by Antoaneta Becker (london)

Friday, October 29, 2010

Inter Press Service

When China's new ambassador to Bulgaria assumed his post in mid-September he made headlines reminding the nation of a fact that may have been intentionally neglected by Bulgarian governments in the post-communist years of reform. Bulgaria was only the second country after the former Soviet Union to recognise the People's Republic in 1949, and that historical legacy was destined to endure.

'China is a like a bullet train and you should catch it,' Guo Yezhou told Trud, one of Bulgaria's main daily newspapers. He said his main mission in the country over the next four years will be to bring the political dialogue between both sides on a par with the existing economic cooperation.

It is a mission now mirrored by China's diplomats all over the former Eastern bloc. Beijing perceives the region not only as one of its new frontiers for exports expansion but also as a strategic entry point for the wider European market.

The countries formerly under the Soviet umbrella -- well inclined to forget the communist ideological heritage that links them to China -- are finding now that those bonds are coming in handy. After years of looking to their western neighbours for investment and business opportunities, the Eastern European economies are these days turning towards China. Sitting atop 2.5 trillion dollar foreign exchange reserves, China emerged from the financial crisis almost unscathed.

Bulgaria's poor infrastructure, inefficient courts and rampant corruption have put serious western investors off. But its relative fiscal stability and corporate taxes of 10 percent -- the lowest in the EU, are deemed attractive to Chinese investors.

A snapshot of Chinese companies' involvement in Bulgarian post-communist economy shows presence in all range of areas.

Telecommunications champions Huawei and ZTE are upgrading Bulgaria's nationwide network. China's largest sports utility vehicle Great Wall Motors has completed a new 80 million euros automobile factory in the northeast of the country. China's Insigma Technology has signed an agreement for the construction of de-sulphurisation facilities with Bulgaria's biggest power plant, Maritsa East Two. It is the company's first de-sulphurisation project in Europe.

Bulgaria has the potential to become the gateway for the transfer of Chinese technologies and investments to the European Union, Stoyan Stalev, head of the Invest Bulgaria Agency said earlier this year.

This was echoed by China's commerce minister Chen Deming.

'China is looking for a country which could be the major bridge between it and the countries from the EU,' Chen declared during his meeting with Traicho Traikov, Bulgarian economy minister during his visit to the Shanghai Expo in July.

China's foray into Bulgaria is repeated in all Central and Eastern European economies. Up north in Romania Chinese companies are negotiating to build new wind power generators. In Poland up till 2007 China had an accumulated investment of 70 million euros but in 2010 its investment is projected to reach 500 million euros.

In Hungary Chinese companies are now given the red carpet with government funding going towards training Chinese businessmen in Hungarian.

This rapid infiltration has annoyed German companies, which have traditionally looked at the region as their turf. They have complained about Chinese state-owned rivals' underhand practices deployed allegedly to gain a foothold in the Eastern European economies.

German industry's Committee on Eastern European Economic Relations warned last week that China seems driven by geopolitical rather than economic goals when competing for contracts in Eastern Europe. The report identified 'price-dumping, aggressive financing and generous risk- guarantees' from Beijing as the methods used by state Chinese companies to undermine their European rivals in the region.

Some of the complaints referred to projects in Poland and Serbia where Chinese companies landed the contracts either by aggressively undercutting the other bids or through lucrative state-backed loans. The committee said there appears to be a 'direct correlation' between Chinese banks' risk assessments of potential foreign projects and 'the strategic interests of the political leadership in Beijing.'

Peter Doran, senior analyst with the Centre for European Policy Analysis in Washington, reckons that as Chinese investments in Central and Eastern Europe begin to yield fruit Beijing is likely to leverage these commercial relationships to bolster political ties with national governments.

'However, in Central Europe's post-crisis economic environment, lingering fallout from the global recession could inadvertently magnify the importance of Chinese interests,' Doran wrote in a recent report.

Chinese analysts counter that perceptions of China's advance in Eastern Europe are clouded by Cold War thinking.

'The west has always considered that part of Europe as their trophy for winning the Cold War,' says Zhang Zuqian, researcher with the Chinese Association for European Studies. 'But the war is over and this is no longer their exclusive domain. It is also usually those European companies that lack competitive edge that complain about Chinese businesses and spread the 'China threat' theory'.